IMPORTANT: The projections or other information generated by this Tax-Advantaged Strategy Simulator (the “Simulator”) regarding the likelihood of various investment outcomes are for illustrative purposes, hypothetical in nature, do not reflect the investment results of actual securities, and are not a guarantee of future results. If any assumptions used are or become false, an investor’s results may be drastically different than projected by the Simulator.
The Simulator assumes a starting basket of 300 equally-weighted hypothetical securities. Returns are randomly simulated monthly with the annualized mean chosen above and annualized standard deviation of 30%. It is assumed that the portfolio’s 2% annualized dividend yield is subject to income tax and is reinvested monthly into a new tax lot. The “Passive” strategy simulates a buy-and-hold strategy over the investment horizon. The “Tax-Advantaged” strategy simulates a tax-loss harvesting strategy. In any period that a tax lot’s cumulative loss exceeds 5%, the tax lot is sold, and the proceeds are immediately reinvested, plus any tax benefit, into a new tax lot. The Simulator calculates tax benefits by assuming that the capital gains offset by the harvested loss are 50% short-term and 50% long-term. Both the “Passive” and “Tax-Advantaged” strategies are assumed to pay an annual expense ratio of 40 basis points. The Monte Carlo simulation takes an average across 2000 iterations for each set of return, risk, and tax assumptions.
The Simulator’s results are based on simulated or hypothetical performance results that have certain built-in limitations. These results do not represent actual trading of securities and are not indicative of actual investment strategy performance. The impact of market factors is not included in any simulation which may cause the results to be over-or-under stated. Simulated or hypothetical trading programs, in general, are designed with the benefit of hindsight. This should not be construed as a representation that any portfolio will, or is likely to, achieve profits, losses or tax savings similar to those reflected through the use of the Simulator. Results may vary with each use and over time. The cost basis of a tax loss harvesting portfolio is driven down due to the realization of capital losses, creating a contingent tax liability. In a tax-free liquidation, investors who will bequeath or donate their tax-loss harvesting portfolio will generally avoid taxes on unrealized gains.
The Simulator is not intended to be tax or legal advice, does not address the tax considerations arising under the laws of any foreign, state or local jurisdiction and cannot be used by any taxpayer for the purpose of avoiding tax penalties that may be imposed on the taxpayer. The taxpayer should consult an independent tax advisor. There are no guarantees to the effectiveness of tax alpha in minimizing an investor’s overall tax liabilities or to the tax results of any given transaction, and the performance of a portfolio may be negatively affected by tax gain/loss harvesting. Investors and their advisors should consult with a tax professional regarding the potential application of loss deferral regimes, such as wash sales and straddles, to any securities and potential transactions in a broader portfolio.
“Tax-free liquidation” assumes the portfolio is donated or bequeathed such that unrealized gains are untaxed.
“Taxable liquidation” displays the portfolio value at each year end as though the portfolio is liquidated, and taxes are paid on capital gains.